99 Responses to “My Response to Mike Norman”

I only hesitated to watch this because I’d have to briefly listen to (and see.. oh god) Mike Norman. Still worth it. Although you’re probably better off directing *your* scarce resources toward addressing flawed arguments put forth by economists that people actually give a shit about, as opposed to increasing this guy’s notoriety.

I think the MMters would agree that at full employment if the govt printed money to buy stuff it would indeed be inflationary (unless offsetting monetary policy was used).

However don’t they also (as Post-Keynesians) think that the economy is likely suffering from chronic low AD and that printing money (running a budget deficit) will increase AD and allow resources that would otherwise be unused to become employed ?

I think that if you introduce things like mark-up pricing and inventory adjustments rather than price adjustments being dominant in an economy then you can get a model where markets don’t always clear and total output will end up being less than optimum.

As far as I can tell the models used are internally consistent. They drive results that are at odds with Austrian theory. I’m not sure that saying “Myself and everyone I know are more than willing to spend more money on goods, as long as the prices are low enough” will refute the models as I think the consumption functions used in PK models would would factor that in.

“I think that if you introduce things like mark-up pricing and inventory adjustments rather than price adjustments being dominant in an economy then you can get a model where markets don’t always clear and total output will end up being less than optimum.”

Optimum according to what standard? If I own a car that is sitting in my garage, that I want to sell for say $10k with currently no takers, are you saying it is “more optimal” if my car was “used up” in some sense, that goes against what I want to do with it?

Your post tacitly assumes that your subjective value judgment is more important than my subjective value judgment concerning my own goods. If I choose to own the car instead of selling it at the prices currently being offered, then doesn’t it stand to reason that my actions reveal to you the optimum use for that car, and not your claims concerning that car?

If I can’t sell the car at the price I am asking, does that justify millions of others to experience a depreciated purchasing power, so that those who gained purchasing power due to governmental force can buy my car at the price I was asking?

“As far as I can tell the models used are internally consistent. They drive results that are at odds with Austrian theory. I’m not sure that saying “Myself and everyone I know are more than willing to spend more money on goods, as long as the prices are low enough” will refute the models as I think the consumption functions used in PK models would would factor that in.”

Are you really sure they are internally consistent? After all, Keynesianism is plagued with contractions. The most blatant one is the fact that Keynes’ marginal efficiency of capital theory contradicts his multiplier theory.

New Keynesianism does suffer from an internal contradiction. The most blatant one is that it considers as an “imperfection” the notion of “monopolistic competition.” And yet it proposes as a solution the activity from a monopolistic institution (the state).

Also, in the New Keynesian models, while not an explicit contraction, the cause of “price stickiness” is never seriously addressed, and it is significant because inflation (which supposedly cures the problems associated with price stickiness) exacerbates price stickiness itself.

Suppose I lost my job. Suppose I held out for a wage that under prevailing conditions is too high for me to land a job, but because I grew up in an inflationary economy, because my parents did, I am “psychologically conditioned” to expect rising prices (and wages) over time regardless.

What do you think I would do?

Now imagine that we instead lived in a free market monetary system, that consisted of productivity based price deflation. Suppose I lost my job. How much more willing would I be to accept a lower wage? More, or less as compared to the inflationary scenario?

If we lived in a world where all markets cleared and everyone had entirely correct expectations about the future(or at least we were close to such a world) then much of what you say would be true.

Introduce some frictions into the system and things become less clear-cut.

Suppose manufacturers really did (as Post-Keynesian claim) set prices based on cost plus markup and if AD fell (for example: because people had lowered expectations about the future so wanted to save more) then employers simply cut back on production (and employment). In such a world cuts in real wages may not boost AD. However if the govt boosted AD by printing money and giving it away then output and employment would increase as a result

It seems to me that whether the world is more like this one , or more like the world the Austrians tend to assume is an entirely empirical matter.

However if the world is more like that described in PK models then advocating for Austrian free market policies is in effect supporting policies that would condemn many to needless unemployment.

Does AD have much power during a recession? My experience has been that employers cut jobs during a recession no matter how much orders increase. It’s pretty common for output to double while head count is reduced by 30% or more. That mode seems to continue until the downturn appears to be over as evidenced by an economy operating without training wheels.

“If we lived in a world where all markets cleared and everyone had entirely correct expectations about the future(or at least we were close to such a world) then much of what you say would be true.”

That makes no sense. You didn’t address any of my arguments. You’re just uttering the same old talking pints about how the market isn’t perfect, so any free market argument is thus flawed.

That isn’t how it works.

What I said is true especially in an imperfect world. If the world really was the way you describe above, there would be no market activity at all, because perfect equilibrium is incompatible with individuals seeking to change their circumstances due to not being satisfied in the present, that is, not being in equilibrium.

“Introduce some frictions into the system and things become less clear-cut.”

This is not addressing what I said. You’re just uttering a vague talking point that doesn’t connect to anything I said.

“Suppose manufacturers really did (as Post-Keynesian claim) set prices based on cost plus markup and if AD fell (for example: because people had lowered expectations about the future so wanted to save more) then employers simply cut back on production (and employment). In such a world cuts in real wages may not boost AD.”

The decision to liquidate and fold the business has ALREADY been made in cases like that.

I am talking about something different.

You’re clearly incapable of understanding why in general businesses will not cut prices just because there is a recession — in contrast to MF’s lurid fantasies — when they have nominal debt and wage contracts to honour — the overwhelming majority in fact.

“So generally they don’t cut prices radically, which would only cut their profit margins.”

If they don’t cut their margins, because they don’t want to lose profits, then that means the “fixed” prices they are charging are actually able to find enough buyers to make the “fixed” prices profitable.

Ergo there is no loss of profitability nor is there any necessary employment generated in your own hypothetical example.

Our firm cuts prices all the time, Adolf Keynes. Does that kill your entire fix-price theory since it’s based on empirical fact? I’m sure nothing will kill that fairy tale you call a theory, will it? Definitely not facts, anyway.

Oh, and did you ever rebuke your idol for his support for eugenics, or do you share the same morality as the man whose namesake you took?

However don’t they also (as Post-Keynesians) think that the economy is likely suffering from chronic low AD and that printing money (running a budget deficit) will increase AD and allow resources that would otherwise be unused to become employed

Probably – but so what? That is not what they say in response to people who are concerned about budget deficits. All they say is not to worry – the government is not revenue constrained – it has a printing press.

But, If you don’t buy that AD explains the onset of a recession, then running a printing press isn’t going to impress you as a solution.

But if Bob just asserts that printing money leads to resources being diverted from elsewhere, while MMTers actually believe that printing money will allow some otherwise unused resources to be used then he is really not addressing the issue at all.

He need to go down a level and explain what is wrong with the models where the MMT claims hold.

If MMTers were showed up here saying “we have an AD problem” then ok – you would have a point. My experience, at least on this blog, is that they don’t – they just assert deficits aren’t a problem because the government can print money.

Bob is explaining that he sees the issues as a real resource problem. I see him as the one trying to go down a level…

But I think Hutt’s views only make sense in a world where prices would eventually adjust to allow output to be optimized.

I think this would not necessarily happen in PK models where a low employment equilibrium could persists with no mechanism for moving out of it. In these models then actions to increase AD play a role in changing the equilibrium to one with a higher level of employment.

“But I think Hutt’s views only make sense in a world where prices would eventually adjust to allow output to be optimized.”

What should this mean?

Hutt analyzed what types of “idleness” in reality can exist and why they exist, which has important implications on Keynes theory. To understand what kind of idle there is and therefore why it actually is, changes what “Optimum” finally means.

On extended quizzing, Mosler revealed he was ignorant of Cantillon effects and didn’t understand how they worked or to what they applied, as evidenced by his asking me to give him a “micro level example” such as “cars, computers, etc.”

He also thought, after I described them to him, that they were obviated by the “continuousness” of income earning, ie, we all earn money every day. He absolutely did not understand that new money and money substitutes generated by government policy hits the economy in different places at different times and that this would serve to reallocate existing scarce resources and the purchasing power used to acquire it.

He absolutely did not understand that new money and money substitutes generated by government policy hits the economy in different places at different times and that this would serve to reallocate existing scarce resources and the purchasing power used to acquire it.

Mr. Valueprax:

Do you agree with me that:

a) No Keynesian or “progressive” ever admits to understanding that, and they may not; BUT

b) That process is at the core of why they have such a spontaneous and emotional attachment to the funny money system?

Further, isn’t the Keynesian policy of “increasing aggregate demand” simply a policy of snatching someone else’s purchasing power and shifting it to the masses so they have new and additional, unearned purchasing power to spend to give “the economy” “traction” or “momentum”? All the while denying the moral outrage of the policy or the lack of due process suffered by the victims?

Exactly. Their policies can do no wrong. Few even admit that they want government to invest the “money” wisely. Many still spew the nonsense about technology “threatening” employment.

“simply a policy of snatching someone else’s purchasing power and shifting it to the masses so they have new and additional, unearned purchasing power to spend to give “the economy” “traction” or “momentum”?”

When we remove the veil, it is obvious. Government paying Capt. Eugenics $1,000/month (to pick his nose and redefine hyperinflation) means that the government is forcing society to provision Capt. Eugenics with goods and services. It is “good” because the government took that $usd from others, that otherwise would have kept it in a bank acct. if the Government wasn’t so gracious as to tax it away.

Bob, Nice video. One correction, though. If I understand the term “dollar-denominated assets” correctly, then at the 4:35 point, you should have said, simply, “dollars,” not “dollar-denominated assets.”

David, let’s say you have an annuity that pays you $10,000 per year. That’s not dollars, but a dollar-denominated asset. Now the government prints up $16 trillion in new hundred dollar bills to pay off the national debt. This won’t affect you in any way?

It would benefit the lender to the extent that he pays back in depreciated currency. But he of course will lose to the extent his own income loses purchasing power. So it depends if his income foes up before other people’s incomes go up, by the inflation.

Fixed income assets, you as the owner of the annuity will definitely lose.

Maybe Henderson has in mind capital goods, or stocks, or other non-fixed income assets, which you can sell at higher prices in an inflation (of course after your buyers gain more money, which of course means your purchasing power has already been depreciated through higher priced exchanges taking place just prior).

“MMters need to start playing a more aggressive and constructive role here. It’s not enough to fall back on the argument that as the issuer of a fiat currency, the US government can, in principle, meet all of its actual and probable liabilities by issuing that currency. That’s a weak standpoint that avoids the fundamental issues.”

I think the MMTers are finally coming out of the closet as the commies that they always were. Whereas I’m horrified at the process of funny money emissions resulting in government seizure and shifting of assets without the victims knowing it, MMTers are ecstatic. That’s why the continuing Columbia Law School indoctrination program is call “Modern Money and PUBLIC PURPOSE”

Michael Norman said…

MMT’s concepts and teachings will never become policy because MMT aspires to be apolitical. You can’t have policy without getting involved in politics.

At 4.42 onwards you’re just confusing and conflating the financial constraints on government spending with the real resource constraints.

No MMT economist I know of denies that real resource constraints affect and limit the level of government spending. Their point is that the *financial* constraints as imposed on governments during the gold standard era are removed with modern fiat money and central banking. And you concede that.

Hence your former criticism is nothing but a straw man.

And as for the issue of real resources, the overwhelming state of modern developed capitalist societies is relative abundance of many goods and idle resources, e.g., involuntary unemployment and idle capital goods, not massive scarcity of resources. There is plenty of scope for government spending and redistribution of resources to create full employment in ways that actually boost production of real output and employment, making society’s real per capita income higher in the process.

He isn’t conflating anything. Bob simply understands broad concepts and you don’t. A loss of purchasing power is a loss of purchasing power. Losing the ability to buy a Corvette and instead left with Cobalt purchasing power means something. It doesn’t matter what the number next to the $ is. Ignore nominal, and focus on real terms.

When government creates more money, the $ per resource ratio increases. Prices don’t rise right away, so the illusion of a free lunch persists.

Government spending means resources that would otherwise be in the private sectors control are now in government control.

Higher government spending simply means MORE control over more resources by the Pelosis and Boeners. Government puts resources to use inefficiently. Paying a worker money to do nothing is not beneficial for the economy. Allocating that payment means telling the productive part of society to give up their food and their housing.

If only being nominally true meant something. Mosler say that cutting taxes and deficit spending via printing = more purchasing power per person. Free lunch? Only true-ish because of the existing fixed contracts that did not anticipate pres. Mosler’s policies.

In a world where frogs can fly, they don’t hit their butts when they land. That world is just as real as the world of fixprices. Empirical data is not your friend, Lord Eugenics. But I’m guessing you discount empirical data when it suits you, right?

“In a world of large scale administered fixprices, the prices rigidities are the overwhelming factor.”

No, the overwhelming factor are expectations. If expectations are of falling prices, investment and thus costs will be reduced.

“Meanwhile, output, employment and per capita GDP increase.”

None of these measure the true health of an economy.

Full employment can be had and GDP can rise if the government printed and spent money paying people to build giant pyramids.

Pyramid per capita would go up, but who, other than the fools in the government directing this sort of thing, would believe that the resulting rise in GDP is a measure of actual health?

The only true measure of economic health is inferred, not observed. It is inferred from individuals having maximum freedom to pursue their economic ends in a context of laissez-faire. The resulting output would be the optimal output, even if you hate it because there are no pyramids.

The MMTers believe that the world is really “constrained” and impoverished by free exchange and sound money which cause permanent deflation and depression. In fact, there are plenty of real goods and services floating around to satisfy all of the government’s unfunded promises. Funny money emissions and unpayable government debt unlock those resources by inducing and stimulating the transformation of those resources to satisfy the unfunded extravagant promises. The problem of scarcity is solved by the stimulation provided by the omniscient and benevolent Keynesian overseers and without their help, we would all shrivel up and die. The funny money and government spending system CAUSE the prosperity that will satisfy those promises and are necessary for those promises to be satisfied with real goods and services.

At the same time, the unbounded activity of laissez faire causes catastrophic climate change.

I’m basically through “debating” Lord “Fixprice” Keynes because, after years of trying to extract the hard core his position, it all comes down to an insinuation that an a priori central planner is needed to guide the rabble in their miserable lives. The MMTers too are just another variation on the same socialist theme.

That is why the very concept of economic calculation can never be allowed to exist in their strange little imaginary world. After beating our heads about these people for years on end, we come to the same conclusion as Mises did 100 years ago: The state theory of money is acatallactic. And will always be.

“That is why the very concept of economic calculation can never be allowed to exist in their strange little imaginary world”

lol.. private sector prices for factor inputs and final output exist throughout any Keynesian system. Economic calculation of profit and loss is perfectly possible and no Post Keynesian and MMTer would deny it exists.

“Economic calculation of profit and loss is perfectly possible and no Post Keynesian and MMTer would deny it exists.”

What Keynesians and MMTers do not get is the concept of price distortions caused by their policies to “cure” a problem that does not exist. Further, profits (often big profits) and “market clearing prices” exist all through the boom phase right up until the collapse.

“private sector prices for factor inputs and final output exist throughout any Keynesian system.”

Hampered prices that do not convey pure market preferences.

You’re equicovating “prices”. Prices presume private property exchanges. You can’t claim private property exchanges when the money in the trade is a monopoly of the state, and where the production of the real goods is regulated up the wazoo.

I’ve explained in detail so many times that market clearing prices are necessarily associated with market clearing products, styles, features, product locations etc… and that anticipating how much of something to make in order to maximize sales and profits is more complicated than mere prices prices prices.

In addition to being oblivious to economic calculation, they either deny the existing of Cantillon Effects or claim that citizens have no right to not be victims of Cantillon Effects. The entire basis of MMT is one big centrally planned Cantillon Effect which is what makes the MMTers totalitarian commies and which makes the process as attractive to them as when you drop a big chunk of steak fat on the floor and your dog immediately inhales it.

“In addition to being oblivious to economic calculation, they either deny the existing of Cantillon Effects or claim that citizens have no right to not be victims of Cantillon Effects”

So citizens are robbed and are victims of Cantillon Effects every time *private sector* activity creates negotiable bills of exchange, negotiable cheques, and negotiable promissory notes and those credit instruments are spent?

Apart from which, in a world of vast numbers of administered prices, Cantllion effects DO NOT EVEN HAPPEN in most markets, where prices are resistant to demand changes ,,, but then we would not expect bob roddis to display some knowledge of the real world, instead of his Austrian fantasy world.

In general I would say that free market credit transactions with sound money do not cause Cantillon Effects because the impact of such credit is not a continuous dilution of the money supply and the associated rise in prices where those getting the new money first can spend it before those holding the old (and depreciating money) can.

You’ve been corrected dozens of times and yet you persist. You remind me of the creationists who intentionally mistate facts about evolution over and over even after being corrected publicly. I’ve also never seen you publicly deny your support for eugenics and rebuke your idol’s love for such practices. Why is that, sir?

Truly we live in barbarous times. If not, a bold statement defending
mass robbery like the following:

“And as for the issue of real resources, the overwhelming state of
modern developed capitalist societies is relative abundance of many
goods and idle resources, e.g., involuntary unemployment and idle
capital goods, not massive scarcity of resources. There is plenty of
scope for government spending and redistribution of resources to
create full employment in ways that actually boost production of real
output and employment, making society’s real per capita income higher
in the process.”

would result in the proponent being tarred and feathered. Instead
nowadays such blatant evil gets you a plush job and a grant.

That forum is literally filled with economic imbeciles, worse even than Lord Keynes and DK. And of them are power hungry too. Just listen to how they start off every sentence with, ” we should” or “It should be…” A bunch of morons with god complexes.

All-important for the maintenance of the capitalist system, economic growth is predicated on national governments supplying (spending and thereby creating) more currency than they remove from circulation via taxation. The macroeconomic accounting system would “dry up” or collapse without government’s continual re-supply of money, especially in areas of the economy that are liquidity constrained, i.e. do not attract money via market exchange. This need for more money in the system stems from the drive of the private sector (businesses, families, individuals) for growing savings/wealth accumulation, a process which gradually removes money from circulation. So capitalism is dependent upon non-capitalist government institutions for both the unit of account and for supplementation and control of overall liquidity in the economy.

*******

The market system in capitalism is by its definition committed to sometimes arbitrary, unplanned decision-making by scattered independent decision-makers, contingent on potential profit, monetary savings, and emergence of new opportunities. In times of crisis or simply to produce a systematically organized outcome (for instance in road building or urban planning), where coordinated decision-making is required, capitalist systems require non-capitalist institutions like governments to lead and guide the process.